IT Infrastructure Outsourcing Helps Shell Lower Costs, Drive Increased Efficiency


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IT Infrastructure Outsourcing Helps Shell Lower Costs, Drive Increased Efficiency

  1. 1. IT Infrastructure Outsourcing Helps Shell Lower Costs, Drive Increased Efficiency OVERVIEW With more than 104,000 employees in more than 110 countries, Shell plays a key role in helping to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways. Despite turbulence in the gas and oil industry, Shell continues to grow its business globally. In 2007, earnings reached US$32 billion and capital expenditures US$24 billion. To excel as a major oil and gas producer, Shell needs a reliable and versatile information technology (IT) infrastructure that leverages new technology and enables business innovation. From helping to discover new oil to supporting teamwork across its global workforce, IT infrastructure is vital for the success of Shell’s business. In October 2005, Shell began investigating options for IT infrastructure delivery in the future. In 2006, the company expressed the intention to outsource a substantial part of the IT infrastructure services, while retaining strategic control and also certain specialist services that bring specific competitive advantage. As a consequence, Shell’s “Infrastructure Sourcing Program” was launched as one of the largest and most complex business transformation programs undertaken by the company. Working together with sourcing advisory experts from ISG, Shell’s program implemented a new infrastructure delivery model and sourcing strategy to bring substantial benefits to its business. The program has impressed stakeholders within and outside Shell; every deadline set was hit; every target was met or exceeded. Powerful lessons can be learned from this program setup and management. BUSINESS NEED A Changing World The Shell logo has existed for more than 100 years, testament to the company’s vast experience and leading position in the oil and gas industry. However, times have never been more turbulent. In today’s markets, companies such as Shell face a highly competitive environment, with volatile crude oil prices, and increasing technical challenges and costs to find and produce hydrocarbon reserves. Client: Shell Industry: Energy ISG Services: IT Infrastructure Outsourcing client requirements ■ IT infrastructure outsourcing strategy to support global workforce ■ Increased value from service providers ■ Improved elasticity in service capacity ■ Optimized IT spend to foster innovation and applications development ISG solution ■ Blueprint for multisourced IT services ■ Customized RFP process ■ Service provider evaluation and selection client benefits ■ Infrastructure sourcing program to spur enterprise-wide growth ■ Improved stakeholder engagement ■ Professional change and communications management ■ Increased transparency and accountability in service provider relationships To continue to thrive, Shell’s strategy is “More Upstream, Profitable Downstream.” In other words, the company aims to grow its hydrocarbon reserves and production while ensuring that manufacturing, marketing and distribution of products remain cost-effective and efficient. IT Infrastructure Technology is key to the success of Shell’s business strategy, and IT (infrastructure) is the pervasive technology that impacts the performance of all its business activities. Between 2002 and 2005, Shell accomplished a successful initiative to globalize its IT infrastructure. The organization, technology and processes were standardized and streamlined, while many parts moved to Malaysia and India. Reliability, global working and unit costs improved immensely, providing Shell with robust and efficient infrastructure services.
  2. 2. CASE STUDY: Shell By 2005, Shell was ready to consider major change in the delivery model and sourcing strategy for infrastructure services in order to: Focus more on business needs and IT opportunities, which had become overshadowed by technical service matters Increase the value from the service providers and contracts engaged in its IT infrastructure delivery Find more elasticity in service capacity to better cope with peaks and troughs typical of the business Contain the growing costs of maintaining existing IT infrastructure services and developing new ones Shell asked ISG to validate the result of a study the client had commissioned to recommend changes to the delivery model and sourcing strategy that would support Shell well into the future. New Delivery Model and Sourcing Strategy The ISG validation process evaluated the strategic options that had been recommended to Shell for sourcing and delivery of IT infrastructure. It engaged thought leaders from within and outside Shell and took account of the capabilities demonstrated by the outsourcing industry. By mid-2006, ISG experts advised: Outsourcing a substantial part of the IT infrastructure services, while keeping the strategic controls and those services within Shell that can provide the company with a competitive edge Implementing a recommended delivery model and sourcing strategy blueprint, based on a multisourcing arrangement, that shows the activities to be outsourced or retained. It assumed contracts with multiple service providers, each responsible for the global delivery of a distinct set of services. Providing an outline approach for the Infrastructure Sourcing Program to realize the recommended delivery model and sourcing strategy. Shell’s Executive Committee supported ISG’s advice and gave the green light for the Infrastructure Sourcing Program. Chapter 2: The Business Case for Change Before embarking on the Infrastructure Sourcing Program, Shell formulated its business case — the justification for change — as follows: Focus – Split responsibilities for identifying business needs and exercising strategic controls from service development and operations Agility – Increase service reliability and performance and create more elasticity to address the large swings in demand for infrastructure services and projects Sustainability – Ensure wider access to the top talent and innovation available in the IT industry and obtain more value from service providers engaged in infrastructure delivery Financials – Reduce the unit cost for IT infrastructure and turn fixed into variable costs The hard and soft targets of the business case were approved by Shell’s executive committee. Chapter 3: The Infrastructure Sourcing Program Program Setup Success of a large undertaking such as the Infrastructure Sourcing Program hinges on these preparations: Agree on the mission statement and business targets that need to be met or exceeded by the program Develop and communicate the program plan by defining, scheduling and estimating the activities and deliverables and clearing the plan with all stakeholders Create a high-performance team: select skilled staff, then articulate the mission, plans, roles and responsibilities for each team and individual Set up governance by defining the major decision and check points, such as transparency on who decides what and the criteria that will apply For the Infrastructure Sourcing Program, the following additional preparations were critical for success: Create diversity in the program team by ensuring variety in disciplines/skills, experience with the different service lines and base countries of program staff Bring the core program team together in one location, acknowledging the inconvenience this brings for team members, such as longer periods away from home Make change and communications management a priority, engaging all stakeholders to build commitment and solicit their feedback Program Phasing The program involved consecutive phases for feasibility and implementation. The feasibility phase had to demonstrate that the program targets could be met or exceeded with a viable plan for implementation. The work culminated with the final decision on outsourcing made in December 2007 by the Shell executive committee on the basis of: Best and final offers from service providers Design and details of the retained IT organization Outlook on realization of the business case Implementation plan The implementation phase ended with the successful transition of services to service providers by the end of September 2008 on the basis of: Contracts signed with the preferred service providers Quality of services at the end of the transition stage Effectiveness of the retained IT services organization Transformation plans to change/improve services 121311 © Copyright 2011 Information Services Group – All Rights Reserved
  3. 3. CASE STUDY: Shell Governance and Management The Shell executive committee set the targets, was kept informed on plans and progress, and made the final decision to outsource IT infrastructure services. Governance was delegated and consisted of these roles: Executive steering committee, chaired by the Shell Group chief information officer, with overall accountability for the program Executive tender board, chaired by the group vice president of contracting and procurement, accountable for review and advice on commercial matters The program director, responsible for delivering the business targets and managing the program team and resources The program team involved many disciplines, including IT, finance, human resources, contracting and procurement, and legal expertise. The size of the program team varied over time, ranging between 100 and 150 full-time-equivalent employees, with 60 to 80 full-time core team members. The team was organized in workstreams, each responsible for specific deliverables, such as: The program management office (PMO) team, charged with planning, reporting progress, assisting with resourcing, and providing facilities and support for program teams and staff The change and communications team, charged with articulating and communicating the changes designed by the program, working with stakeholders to build commitment and receiving feedback The commercial transaction teams, focused on defining the commercial strategy to be followed, developing the request for proposal (RFP) to service providers, evaluating the best and final offers, selecting the preferred service providers, and approving the completed contracts The people and organization teams, focused on developing terms and conditions for staff transfers, proposing the organization design for the retained IT controls and services, documenting processes and interfaces for the new ways of working, enabling staff transfers, and on ensuring readiness of the retained IT organization Apart from workstream leaders, the program team also had discipline leaders to manage and coordinate discipline-specific staff across the workstreams. For example, the finance leader would coordinate finance activities and coach staff across the workstreams to ensure financial integrity across the program. The program leadership team consisted of the workstream and discipline leaders, the PMO leader and the program director. In their weekly meetings, the program leadership team reviewed progress versus plans, reviewed issues and risks and decided on remedial actions. This ensured constant focus on deliverables and meeting the timeline. Workstream and discipline teams would also meet weekly to receive updates on the overall program status. Staff were encouraged to be candid about potential problems they observed. This open communication meant problems could be tackled early and kept team spirit high. Once the preferred service providers had been announced, Shell enabled these providers to participate in managing and steering the implementation work. The critical step was establishing a joint PMO team with the service providers that would create and maintain the implementation plan, and monitor and report progress of deliverables required for services transition. A joint transition management meeting was held weekly with representatives of Shell and the service providers to review the progress, issues and risks and decide on actions. Projects were defined for a number of major changes required for services transition, such as for modifications needed in the request-to-pay processes and systems. These change projects were resourced with staff from Shell and the service providers, and a joint steering committee was instituted to steer these projects at stage gates and for major decisions. The Commercial Challenge The commercial transaction teams produced the detailed scope and requirements for the service bundles. These teams worked closely with the service providers on the technical solution and pricing of services, conducting the following steps: Solution framing – Going out to the market and inviting potential service providers to advise Shell on how to structure and operate the new delivery model Request for proposal – Documenting scope and requirements for services and sending to service providers for their technical and commercial response Evaluation and short-listing – Evaluating responses from service providers to RFPs, ranking on technical and commercial aspects, and short-listing service providers to make final offers Best and final offers – Inviting, receiving and evaluating the best and final offers from the short-listed service providers Selection of preferred service providers – Evaluating final offers on technical and commercial aspects and recommending preferred service providers Contract closure and signing – Ensuring agreement and documentation of all contract details and organizing contract signing The “solution framing” step was particularly successful, with service providers providing their views on best practices and solutions for outsourcing. This interactive process involved presentations and follow-up discussions and created a positive ambiance for the next steps. Retained IT Controls and Services A crucial part of the project was identifying and specifying which IT controls and services would remain within Shell. For the retained controls and services, the program team developed an organization structure detailed down to individual positions and job descriptions. 010612 © Copyright 2012 Information Services Group – All Rights Reserved
  4. 4. CASE STUDY: Shell The retained organization that was agreed upon employs some 550 positions covering the following areas: Strategic controls – Involves positions for developing strategy and planning, controls on architecture and technology, managing service performance, and interfacing with service providers on contractual and commercial issues Business interface and demand – Teams within Shell who manage demand, identify new requirements, assess quality of services delivered by service providers and alert when incidents impact business performance Specific Services Delivery (SSD) and Specific Projects Delivery (SPD) – Deliver services that can bring competitive advantage to Shell’s oil and gas business and services for seismic processing and interpretation, plus assist project teams with change and stakeholder management at the company Structuring and sizing the retained IT organization required many stakeholders in Shell’s business to agree and took several months to conclude. Engagement and Transparency Throughout the study and program, Shell aimed for open and honest communication with all stakeholders. With more than 4,000 employees and contractors directly affected by the program, engagement and transparency were important. Sharing information with employees and contractors as early and as fully as possible without jeopardizing commercial integrity — such as through newsletters, town halls, change councils and meetings with staff councils — yielded these effects: By sharing goals and plans, staff had the opportunity to prepare themselves Early feedback was collected that was relevant for next steps Speculation and rumors were to a large extent avoided because staff knew what to expect To help prepare for change, Shell organized “Facing Change” workshops, open for staff to attend and helping them to anticipate the journey and take hold of their future. Chapter 4: The Deliverables The infrastructure sourcing program resulted in an outsourced IT infrastructure service with four service areas: Managed network services – Telecommunications, connectivity and collaboration services Hosting and storage, including data centers End-user computing – Desktops, service desks and onsite support Operational integration – Enabling integrated effort of service providers for activities such as incident management Shell has selected three IT service providers to deliver these services: AT&T for managed network services; T-Systems for hosting and storage; and EDS for end-user computing. EDS has also assumed the role of operational integrator, one of the most innovative roles of the delivery model. It has a separate responsibility and team to orchestrate the work when integrated efforts of multiple service providers are needed. For instance, when a serious incident is declared, EDS will supervise and direct the actions of all the service providers until it is resolved. Underlying the teamwork of Shell and service providers is a welldocumented process model based on industry standards, including Information Technology Infrastructure Library (ITIL) and Control Objectives for Information and Related Technology (CoBIT). The model specifies the steps and responsibilities of the players involved and documents the handoff of actions and results from one player to the next to ensure that the baton is successfully passed. The Results The RFP was issued May 1, 2007; the final decision for outsourcing was made on December 18, 2007; the contracts were signed on March 31, 2008, and the services went live July 1, 2008 – a remarkable timeline. A major achievement of the program has been the high rate of staff transfers; 98 percent of offers to employees were accepted, helping to explain why the transition has been smooth and free of business disruptions. With the transition of services achieved, a transformation program started during 2008 that enables the service providers to transform the services and their delivery. These transformations are bringing new technology and functionality to Shell and enable the service providers to streamline delivery and achieve service and cost levels as contracted. The transformations were scoped and scheduled as projects and ran from the end of 2008 until early 2011. SOLUTION Although Shell had experience in running large business change programs, it had never undertaken an outsourcing project the size and complexity of the infrastructure sourcing program. Shell decided to work with an experienced advisor who could team with its executives, managers and staff to turn the proposed delivery model and sourcing strategy into reality. The ISG Proposition Shell recognized that ISG offered unique knowledge of the market and service providers amassed from its involvement in many complex outsourcing engagements. ISG offers clients a structured approach to outsourcing, tried and tested over many years. Using the ISG approach and advisors ensures that an outsourcing program is implemented quickly and stays on track. ISG and Shell worked closely with law firm Clifford Chance on drawing up contracts for services with the service providers that would best fit Shell’s requirements. 010612 © Copyright 2012 Information Services Group – All Rights Reserved
  5. 5. CASE STUDY: Shell ISG at Work The first ISG activity was working with the Shell team to develop the program plan and organization based on the ISG M-STEP methodology. ISG advisors were assigned to the workstreams and program leadership team to consult on the contents and quality of the deliverables required. The RFP represented the key deliverable for the commercial transaction stream. ISG provided an RFP template that could be tailored to Shell’s specific circumstances and requirements. This structure ensured quality and completeness and enabled the service providers to give precise responses. Shell had decided on a multisourcing arrangement that held each selected service provider responsible for a set of distinct services. It also required service providers to collaborate in specific processes under an operational integrator. These processes include request management, incident management, problem management, performance management and invoice management, all of which required service providers to work closely together for desired results. As such a role is not yet widely practiced, ISG conducted research that contributed to the requirements in the RFP. ISG and Shell staff qualified the service providers that would be invited to respond to the RFP, using criteria such as geographic footprint and experience. The RFP was issued in May 2007 to qualified service providers. At this point, Shell staff and ISG advisors worked closely with these service providers to help them understand Shell’s requirements and the process for selecting the preferred service providers. ISG and Shell’s procurement team jointly guided service providers through the evaluation process, enabling them to develop prototypes and demonstrations that matched Shell’s needs. ISG helped Shell define the criteria to downselect the service providers based on their technical solutions and the pricing of their services. The selection criteria and ratings were agreed to before the RFP was finalized and did not change further. The technical and financial ratings were determined by separate teams to avoid prejudice. Combining the two, Shell then selected service providers based on their total ratings and did not apply further criteria. Also typical for the ISG approach are the mutual value discovery (formerly known as “yellow pad”) sessions, which involve a service provider, the relevant Shell staff and ISG. The sessions are conducted when the RFP is issued to clarify the contents and selection process and to clarify the responses when service providers send their proposals. These intense interactions are critical for the success of the service provider selection and often require more than 60 staff together in the meeting room. CLIENT BENEFITS Working with ISG was a key element of the successful completion of the infrastructure sourcing program. Specific benefits of the ISG/Shell partnership included: Use of a proven ISG approach covering all required actions and results Ability to plan and schedule the work, knowing what skills and team size were required Template RFP that ensured crisp and clear communication of what was required and offered Commercial and technical acumen of ISG consultants and market intelligence Three months after service commenced, Shell had identified a number of key lessons on managing business change programs on this scale. Some of the generally applicable lessons included: To meet deadlines and milestones, programs need a clear and simple governance structure, a mission and goals agreed to by the key stakeholders Keep an open mind and let service providers challenge your requirements and views Transparency with potential service providers leads to best results and makes the collaboration enjoyable Staff and contractors affected by the outsourcing should be engaged and their feedback incorporated as early and fully as possible Leadership and Teamwork Strong program leadership paid off to drive achievement of the major milestones. Program leaders created a high-performance team that was clear about the mission and overall program goals and plans as well as their individual roles and responsibilities. They were encouraged to raise problems early on and would see these addressed right away. The core team shared offices in The Hague, always able to sit down in one room and sort out any issues together. Change and Communications The priority put on change and communications management by Shell and the resourcing and professional execution of these activities were fundamental to the program’s success. The program identified its stakeholders and their needs for making change and ensured these needs were addressed. That way, the program was aware and secured the commitments required to implement change. In hindsight, the engagement of stakeholders should have received even more attention. The infrastructure program was hardly visible for staff outside IT, such as those in the business line. Even many IT staff involved in applications management were not aware of the changes and impacts from infrastructure outsourcing. Holding the Service Providers Accountable An important lesson learned was to make sure that the language of the contract clearly specifies what the service providers must deliver and to hold the providers accountable for these deliverables. Shell found that in some areas, the deliverables and milestones were not clear enough, requiring much time to solve after contract signing. 010612 © Copyright 2012 Information Services Group – All Rights Reserved
  6. 6. CASE STUDY: Shell Also, Shell’s tendency to step in and help service providers having difficulty in delivering introduces the risk of providers feeling they are no longer fully accountable. CONCLUSION The initial service contracts were written for five years. For the immediate future, Shell’s priority is to monitor and steer realization of the business case, ensuring that the benefits are achieved. Shell aims to create a true partnership with and across AT&T, T-Systems and EDS that involves more than just the contracts. Critical for the partnership will be the mutual respect shown for each other and partner behaviour. Shell will need to focus on new requirements and service levels, leaving the development and delivery of services to the service providers. For IT infrastructure strategy, architecture and planning, all partners will have to contribute and seek accommodation of other views. Though cost levels need to be closely managed, Shell needs to provide space to pursue other goals as well, such as collaboration on business innovations. Shell created the Innovation Council — a team including representatives from the service providers — which is tasked with developing opportunities that can improve business performance. Shell has strategic service providers for products, applications management and infrastructure management. Together with some critical niche service providers and its own IT organization, they need to forge a “OneIT” model in which service providers work together driven by the goal to improve Shell’s business, not just their own bottom line. Shell refers to it as the ecosystem. With all players working together it thrives, but if one or more won’t play, it falters. Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 700 employees and operates in 21 countries. For additional information, visit To learn more about ISG solutions for IT infrastructure outsourcing, contact: Denise Colgan Director +44 1737 371523 010612 © Copyright 2012 Information Services Group – All Rights Reserved